Minimum Income Guarantee could play a key role in eradicating child poverty

1. The ambition of achieving a minimum income guarantee (MIG) in Scotland is a very welcome development. A minimum income guarantee could lift all children out of poverty. It could also prevent poverty and provide financial stability and security for everyone in Scotland. 2. There are immediate actions, and commitments, which can be taken in Scotland using existing powers to improve incomes from employment and social security, which are immediate steps towards achieving a MIG. 3. In order to realise a MIG in Scotland the Scottish Parliament would require further powers over social security (or significant changes to UK social security policy). There needs to be careful consideration of the best way to use social security powers, including any additional social security powers, to support people’s incomes. MIG cannot be used to replace all, or most, social security payments with one means-tested payment. 4. Universal and contributory benefits need to play a continuing and enhanced role in social security in Scotland. There must be an investment in universal, contributory and extra-cost benefits as part of any MIG. 5. Where means-tested benefits are used there are a number of important issues to consider such as adequacy, eligibility, income and capital, and conditionality. 6. MIG must be based on an adequate level of payment. Using the already established Minimum Income Standard would provide that level of adequacy. If another minimum income floor is developed, it is important that the level is sufficient to both lift households out of poverty and ensure they have long-term financial security. 7. The SNP manifesto makes it clear that a MIG should also incorporate the idea of universal basic services. Like a MIG, universal basic services can cover a wide variety of options. What is important is that the provision of these services must be universal (like the NHS) rather than means-tested (like water and sewerage charges). The provision of ‘free’ services to only low income households cannot be used as a reason to reduce the level of the minimum income floor. 8. Investment in social security should be seen in terms of the benefits of investment rather than just as a cost.

Why the contribution is important

1. The pandemic has shown us that anyone can see a sudden and dramatic fall in income and we know that the current social security system does not provide an adequate safety net. 2. This Scottish parliament can, and must, take steps to work towards a MIG using the powers it current holds – many of the policies in CPAG in Scotland’s Programme for Government can achieve the joint aims of reducing levels of child poverty and moving towards a MIG. The Scottish Government should invest significantly more in the Scottish Child Payment as a key step towards a MIG. 3. We know there are many disadvantages to relying solely on means-tested benefits: a. Means-tested benefits can have low take up rates – complexity, stigma and the need to provide detailed financial information all reduce take up rates for means-tested benefits. b. Fluctuating incomes create difficulties when assessing entitlement to means-tested benefits. This leads to excessively complex systems, large overpayments or/and inefficient use of resources. c. Fluctuating payments also causes income insecurity for claimants, as they do not know how much they will be receiving, making it very difficult to plan and budget. d. Means-tested benefits are reduced as a household’s income increases. The way this reduction is calculated can have an impact on the fairness of the system and can disincentivise paid work. For example under universal credit, for every £1 earned, 63p is lost in benefits. When this is coupled with other factors such as income tax, national insurance contributions, childcare costs and passporting to other benefits such as the Scottish child payment – families may in fact be worse off by working more hours. e. A minimum income guarantee will need broad public support - focusing solely on low income households creates a divide between those who perceive that they are ‘paying for’ the systems and those who receive benefits, reducing social cohesion. We know that the more selective social security systems are, the higher the perception that those who are in receipt of payments are ‘less deserving’ and therefore means-testing can undermine support for the system. f. Means-tested benefits can do much to reduce household poverty and inequality, but without careful consideration, they may do little, or even exacerbate, existing intra-household inequalities. The ‘gender blind’ policy development of universal credit has led to a system that is ‘discriminatory by design.’ Were a minimum income scheme to follow the model created by universal credit this discrimination would remain in place. 4. There are good reasons to ensure that universal, extra cost benefits and contributory benefits such as child benefit, child disability payment, personal independence payment, state pension and contribution-based jobseekers allowance, play a major role in any future social security system in Scotland. We must recognize that they can play a vital role in making a minimum income guarantee a reality in Scotland. a. Universal benefits are paid to everyone, or everyone who meets some basic condition (such as being responsible for a child for child benefit). This simplicity create a systems that is easy (and cheaper) to administer, easy to understand and easy to claim. b. Universal benefit generally require less information, and therefore the claim process is less intrusive. This makes them more attractive to claim. This, and their simplicity, means that take up rates are higher than for other forms of benefits. c. Universal benefits play a role in preventing poverty and can provide a foundation on which to lift families out of poverty. They also provide security of income over time, allowing families to budget and deal with any financial shocks. d. As everyone is entitled to universal benefits this reduces stigma, and because everyone gains, this helps build support for investment in the social security system. It also helps further increase take up. e. As they are paid to an individual, rather than a household, careful investment in universal benefits, such as child benefit, can reduce intra-household poverty. f. Entitlement to contribution-based benefits is based on the amount of contributions an individual has paid. With sufficient investment contributory benefits can help limit the impact of financial shocks to households caused by, for example, illness or unemployment. This can create financial stability and stop households falling into poverty. The link between contributions and entitlement can further reduce stigma and increase uptake and support for investment in the social security system. Care also needs to be taken to ensure that any investment in contributory benefits is done in line with the human rights obligation to reduce inequality – for example, investment in contributory benefits for those in work may inadvertently discriminate against those unable to work due to health, childcare or immigration reasons. 5. For any means-tested benefits there are some key issues to consider, and again these will determine how successfully any scheme meets its objectives. a. Adequacy : One of the major problems with means-tested benefits is the level at which they are paid. Often those in receipt of means-tested benefits are still living below the poverty line, with no way of increasing their income, guaranteeing they remain in poverty. This makes additional benefits, such as the Scottish child payment, so vital in tackling child poverty in Scotland. b. Eligibility : A key question for any social security system is who is eligible. In the UK social security system eligibility to means-tested benefits depends on age, and circumstances. Some groups, such as those with no recourse to public funds and most students, are not eligible at all. Any minimum income scheme will have to ensure that eligibility is as wide as possible, to ensure no one is left behind in poverty. c. Income and capital: Any means-testing must consider what means are tested. Some means-tested benefits, such as tax credits, disregard capital (such as savings and property) and only look at taxable income, others disregard some forms capital and have assumed a notional income from other forms of capital. How a means-tested scheme treats capital can have an impact on long term poverty and wealth inequality and will affect both public support and the fairness of the scheme. Similarly income can be dealt with in different ways. In means-tested schemes some income can be disregarded, for example the work allowance in universal credit. The amount of means-tested benefits a claimant receives can be reduced in a tapered way as someone’s income goes up, or can stop abruptly when an income reaches a certain point. These two factors, combined with other policies such as tax and national insurance payments, can affect the net increase in income that a claimant receives when they increase their income from other sources. Again, a balance on how income is treated needs to be struck. d. Household v individual: In our current systems it is a household, rather than an individual, that is assessed as eligible to means-tested benefits. This is not true for universal and contributory benefits which are often paid to an individual. As noted above means-tested benefits can exacerbate existing intra-household poverty and limit individual financial freedom. Much like the current tax system, means-testing could assess income on an individual level rather than a household level. This would be a huge change for the current system, and the costs and benefits must be considered. If entitlement is based on a household income consideration must be given to how payments are split within a couple and finding a balance between fairness and simplicity is not easy. e. Conditionality: In the UK social security system means-tested benefits have a high level of conditionality, usually around compliance with working, looking for work or preparing for future employment. The punishment for failure to meet this conditionality is a complete or partial reduction in the level of benefit that is paid. It is not clear how a system of conditionality that reduces payments based on claimants’ behavior is compatible with a system designed to ensure that everyone has a set minimum income. 6. It is important that the level is sufficient to both lift households out of poverty and ensure they have long-term financial security. Protections also need to be put in place to ensure that it continues to be paid at a sufficient rate – we have seen the value of means-test support for work-age households fall dramatically in real terms over the last two decades. 7. Means-testing basic services carries with it many of the problems that means testing social security payments brings. 8. Investment in social security is, as well as being an “investment in the people of Scotland”, an effective way to provide an economic stimulus.

by CPAG_Scotland on September 09, 2021 at 03:48PM

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  • Posted by TheHighlandCouncil September 15, 2021 at 10:14

    This comment has been removed by a moderator.

  • Posted by Jane789 September 16, 2021 at 09:54

    I think this is a great idea to take ensure that all people have some income to pay bills such as food, power, mobile phone bills, broadbills, council tax. Covid 19 has shown that Universal Credit and furlough are not fit for purpose and something else is needed to fill the gaps where people fall through the existing system. It will help all Scots realise their potential.
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